Zane Algreen v. Timothy Gardner and Gardner Crop Insurance, Inc. , 919 N.W.2d 768 ( 2018 )

IN THE COURT OF APPEALS OF IOWA
No. 17-0104
Filed June 20, 2018
ZANE ALGREEN,
Plaintiff-Appellee,
vs.
TIMOTHY GARDNER and GARDNER CROP INSURANCE, INC.,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Monroe County, Randy S. DeGeest
and Lucy J. Gamon, Judges.
Litigants challenge the finding of a fraudulent transfer and subsequent
piercing of the corporate veil. REVERSED AND REMANDED.
John A. Pabst of Pabst Law Office, Albia, for appellants.
Andrew L. LeGrant of LeGrant Law Firm, P.C., Urbandale, for appellee.
Heard by Doyle, P.J., and Tabor and McDonald, JJ.
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MCDONALD, Judge.
This consolidated appeal concerns two separate but related actions initiated
by Zane Algreen against Timothy Gardner and Gardner Crop Insurance, Inc.
(GCI). The first action involved a claim for unpaid wages arising under the Iowa
Wage Payment Collection Law, Iowa Code chapter 91A (2012). In that suit,
Algreen obtained judgment against GCI in the amount of $19,770.05 for unpaid
compensation, $2337.32 for liquidated damages, and $46,292.89 for attorney fees
and expenses. In the second action, Algreen sought equitable relief against
Gardner and GCI for the failure to pay the judgment in the first action. Algreen
asserted a claim for fraudulent conveyance, arising under Iowa Code chapter 684
(2016), and sought to pierce the corporate veil. The district court granted Algreen’s
petition, held Gardner would be held jointly and severally liable for the judgment in
the first case, awarded punitive damages in the amount of $22,107.37 against
Gardner and GCI, and directed Algreen to submit a supplemental attorney-fee
affidavit in the wage-payment case for the award of additional attorney fees and
costs incurred in collecting the judgment. After Algreen submitted the affidavit, the
district court awarded an additional $22,202.18 in attorney fees and costs in the
wage-payment case. Gardner and GCI timely filed this appeal.
I.
The record reflects the following. GCI was in the business of selling multiple
peril crop insurance and hail insurance policies. Gardner was the founder and
owner-operator of GCI. He founded the company in 2001. Gardner owned 87%
of the company stock, and he served as the company’s president, secretary,
treasurer, and director. Gardner’s son owned the minority share of the company.
3
Algreen commenced employment with GCI in May 2011. At that time,
Algreen was married to Gardner’s sister. But when the marriage ended in 2012,
so did Algreen’s employment. Algreen believed GCI owed him base-wages and
commissions at the time of his termination. When Algreen informed Gardner he
expected payment, Gardner told him, “You’ll never see another dime.”
Approximately one year later, in April 2013, Gardner began negotiating the
sale of GCI to CGB Diversified Services, Inc. In February 2014, Gardner and CGB
Diversified finalized the terms of the agreement. CGB Diversified purchased GCI’s
book of insurance business for a maximum of $1.8 million pursuant to a payment
schedule with the final purchase price dependent on the revenue produced from
the book of business. CGB Diversified also agreed to employ Gardner as a sales
agent with Gardner being subject to a non-compete and non-disclosure
agreement. GCI thus ceased operations at that time. CGB Diversified was to pay
the purchase price in a series of installment payments, with each installment to be
split 87% to Gardner and 13% to the minority shareholder in GCI. The first
installment of $360,000 was paid at the time of closing. Additional installment
payments have been made in the amounts of $313,200; $307,388; $310,954; and
$311,160.
In September 2013, after Gardner had commenced negotiation to sell his
business to CGB Diversified, Algreen filed his action to collect unpaid wages. In
April 2015, following a jury trial, the district court entered judgment against GCI in
the amount of $19,770.05 for unpaid compensation, $2337.32 for liquidated
damages, and $46,292.89 for attorney fees and expenses. The date of the
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judgment entry is more than one year after Gardner sold his business to CGB
Diversified.
After the entry of the judgment, Algreen began unsuccessful efforts to
collect on the judgment against the now-defunct business. A writ of general
execution was issued in September 2015 but was returned unsatisfied. Algreen
unsuccessfully attempted to garnish GCI in November 2015. In March 2016,
Algreen filed an application to levy execution pursuant to Iowa Code section
684.7(2). GCI resisted, and the matter was litigated. Algreen then withdrew his
section 684.7(2) application and elected to file an independent action alleging
fraudulent transfer of assets. Another writ of execution was issued but returned
unsatisfied, and Algreen’s second attempt to garnish GCI was also unsuccessful.
Algreen filed his petition for equitable relief asserting a claim of fraudulent
transfer against Gardner and GCI in May 2016. He asked the court to pierce the
corporate veil and hold Gardner and GCI jointly and severally liable for the full
amount of the judgment in the wage-dispute action. He also asserted he was
entitled to an award of punitive damages because Gardner and GCI acted with
malice or reckless indifference to his rights. The fraudulent-transfer matter was
tried to the bench. The district court concluded Algreen proved his fraudulent
transfer claim and proved the corporate veil should be pierced. The court awarded
punitive damages in the amount of $22,107.37—an award equal to the amount of
damages awarded by the jury in the wage-dispute suit. The district court held
Gardner and GCI jointly and severally liable for the full amount of judgment in the
wage-dispute action and for the punitive damage award. The court also ordered
Algreen to submit a supplemental application for attorney’s fees and expenses in
5
the wage-dispute action and held Gardner and GCI jointly and severally liable for
any such fees and expenses awarded. Gardner and GCI’s motion to amend and
enlarge findings of fact and conclusions of law was denied. Gardner and GCI
appeal.
II.
We first address Algreen’s fraudulent-transfer claim arising under Iowa
Code chapter 684. Gardner and GCI contend there is insufficient evidence
supporting the fraudulent-transfer claim. This case was tried in equity, and our
review is de novo. See Iowa R. App. P. 6.907. We give weight to the district
court’s factual findings, especially those involving credibility determinations, but we
are not bound by them. See Iowa R. App. P. 6.904(3)(g). We examine the entire
record and adjudicate anew the rights of the parties on the issues presented. See
City of Wapello v. Chaplin, 507 N.W.2d 187, 188 (Iowa Ct. App. 1993). At the time
this action was filed, the party alleging a fraudulent transfer had the burden of
proving the claim by clear and convincing evidence. See Ralfs v. Mawry, 586
N.W.2d 369, 373 (Iowa 1998) (addressing burden); 2016 Iowa Acts ch. 1040
(codified as amended at Iowa Code § 684.4(3) (Supp. 2016)) (amending section
684.4 to state the burden of proving the elements of the claim is a preponderance
of the evidence).
The Uniform Fraudulent Transfer Act (UFTA), Iowa Code chapter 684,
governs fraudulent transactions. The UFTA sets forth two types of fraudulent
transfer: those transfers made with “actual intent to hinder, delay, or defraud any
creditor of the debtor” and those made without reasonably equivalent value for the
transfer. Iowa Code § 684.4(1). Only the first type of claim is at issue in this
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proceeding. “When a debtor disposes of property with the intent to delay or
defraud creditors, we deem the disposition inequitable and will set it aside.”
Benson v. Richardson, 537 N.W.2d 748, 756 (Iowa 1995). “The rationale for the
right to reclaim fraudulently conveyed property is, and always has been, to prevent
a debtor from frustrat[ing] his creditor’s rights and avoid[ing] his obligations by
changing title to his assets.” Schaefer v. Schaefer, 795 N.W.2d 494, 498 (Iowa
2011).
Iowa Code section 684.4(2) sets forth the factors to be considered in
determining actual intent. Those factors, also referred to at times as “indicia of
fraud” or “badges of fraud,” include:
a. Whether the transfer or obligation was to an insider.
b. Whether the debtor retained possession or control of the
property transferred after the transfer.
c. Whether the transfer or obligation was disclosed or
concealed.
d. Whether, before the transfer was made or obligation was
incurred, the debtor had been sued or threatened with suit.
e. Whether the transfer was of substantially all the debtor’s
assets.
f. Whether the debtor absconded.
g. Whether the debtor removed or concealed assets.
h. Whether the value of the consideration received by the
debtor was reasonably equivalent to the value of the asset
transferred or the amount of the obligation incurred.
i. Whether the debtor was insolvent or became insolvent
shortly after the transfer was made or the obligation was
incurred.
j. Whether the transfer occurred shortly before or shortly after
a substantial debt was incurred.
k. Whether the debtor transferred the essential assets of the
business to a lienor that transferred the assets to an insider of
the debtor.
Iowa Code § 684.4(2). These factors or badges of fraud “are circumstances that
so frequently accompany fraudulent transfers that their presence gives rise to an
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inference of intent. The test is whether there is a satisfactory explanation for the
circumstance.” 37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 12
(2001). As the supreme court has recognized, “[t]he circumstances of a bona-fide
transaction are ordinarily consistent with each other and with generally recognized
business methods and fair dealing, and not incredible. A fraudulent transaction
naturally begets stilted, contradictory, and incredible evidence. The bona-fide
transaction and the fraudulent one each has its well-recognized indicia.” Rouse v.
Rouse, 174 N.W.2d 660, 667 (Iowa 1970).
The district court concluded Algreen established the sale of GCI’s assets to
CGB Diversified was a fraudulent conveyance. In support of its conclusion the
transaction was made for the purpose of hindering or delaying Algreen’s collection
efforts, the district court found the following indicia of fraud: Gardner was aware
of Algreen’s wage-payment suit prior to the sale, the transfer involved all of the
GCI’s assets, and GCI was insolvent following the sale to CGB Diversified. The
district court also found further evidence of fraudulent intent. Most notably, the
district court relied on Gardner’s statement that Algreen would “never see another
dime” and noted Gardner’s personal spite and disdain for Algreen. The district
court found Gardner’s contempt for Algreen evidenced his actual intent to hinder
collection on the judgment.
On de novo review, we conclude there is insufficient evidence to establish
a fraudulent transfer within the meaning of the statute. The district court failed to
place the transaction into context. Gardner commenced negotiation of the sale of
his business in April 2013, prior to the time he had notice of any suit for unpaid
wages. The sale was completed in February 2014, more than one year prior to
8
the entry of judgment in the wage case. The sale was to a legitimate third party
and was for substantial value. The conclusion that Gardner divested himself of his
business worth $1.8 million to avoid the possibility of paying a $20,000 wage claim
is not supported by the record and defies common sense. The transaction at issue
appears to be nothing more than a routine asset-purchase agreement transacted
by an owner-operator looking for an exit.
The district court’s failure to place the transaction into context taints its
findings with respect to the indicia of fraud. It is unsurprising that GCI sold all of
its assets, was technically insolvent, and was a mere shell without employees or
any legitimate business operations. While the sale was structured as an asset-
purchase agreement rather than a stock-purchase agreement, the entirety of the
business was still sold to a third party with the intent GCI be closed. See Ranniger
v. Iowa Dept. of Revenue and Fin., 746 N.W.2d 267, 268 (Iowa 2008) (finding for
Internal Revenue Code purposes the “sale of a business means the sale of all or
substantially all of the tangible personal property or service of the business.”)
Indeed, as part of the asset-purchase agreement, Gardner was to be employed by
CGB Diversified subject to a non-competition agreement precluding him from
operating a similar business. At best, the record reflects Algreen’s inability to
collect against the defunct business was but a happy consequence of the sale of
the business, at least as far as Gardner was concerned.
In sum, Algreen failed to prove by clear and convincing evidence the sale
of GCI’s book of insurance business to CGB Diversified was done with the actual
intent to hinder or delay Algreen’s collection of his claim against GCI. The
evidence reflects the sale of GCI’s book of insurance business to CGB Diversified
9
was nothing more than a routine business transaction. Because we find Algreen
failed to prove Gardner committed a fraudulent transfer, any award of damages
and fees stemming from this claim is necessarily vacated. This includes the
punitive damage award. We reverse the district court on this claim and remand
for dismissal of the claim.
III.
Gardner next challenges the district court’s decision to pierce the corporate
veil and hold him jointly and severally liable for the judgment in the wage-dispute
action. We begin with background.
It has been long accepted a corporation is a legal entity with
jural existence separate and distinct from its shareholders. See Iowa
Code § 4.1(20) (defining a person to include a corporation); Wyatt v.
Crimmins, 277 N.W.2d 615, 616 (Iowa 1979). It has been long
accepted a corporation’s shareholders are not personally liable for
the obligations of the corporation solely because of their status as
shareholders. See Iowa Code § 490.622(2) (“Unless otherwise
provided in the articles of incorporation, a shareholder of a
corporation is not personally liable for the acts or debts of the
corporation.”); 5 Matthew Doré, Iowa Practice Series: Business
Organizations § 15.3(1), at 454 (2014–2015) (stating limited liability
is the presumptive rule). It also has been long accepted courts will
disregard the presumptive rule of limited liability under exceptional
circumstances and impose liability on an individual or individuals for
what would otherwise be a corporate obligation. See Wade & Wade
v. Cent. Broad. Co., 288 N.W. 441, 443 (Iowa 1939).
While the rule allowing for the imposition of personal liability
on a shareholder for a corporate obligation is long accepted, the
rationale underlying the rule is not well developed. See 5 Doré, Iowa
Practice § 15:3, at 458 (“In Iowa, as elsewhere, it is difficult to make
sense of the case law governing disregard of the corporate entity.”);
Mark A. Olthoff, Beyond the Form—Should the Corporate Veil be
Pierced?, 64 UMKC L.Rev. 311, 312 (1995) (“Courts and
commentators have struggled for many years to develop principles
that, when applied, would reveal whether a separately existing
corporate organization should be disregarded.”); Robert B.
Thompson, Piercing the Corporate Veil: An Empirical Study, 76
Cornell L.Rev. 1036, 1036 (1991) (“Piercing the corporate veil is the
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most litigated issue in corporate law and yet it remains among the
least understood.”). Our cases speak only in metaphor and
generalities, holding the “corporate veil can be pierced” when the
corporation is a “mere shell,” “sham,” “intermediary,”
“instrumentality,” or “alter ego” of the shareholders. “This language
is inherently unsatisfactory since it merely states the conclusion and
gives no guide to the considerations that lead a court to decide that
a particular case should be considered an exception to the general
principle of nonliability.” Robert W. Hamilton, The Corporate Entity,
49 Tex. L.Rev. 979, 979 (1971). Ultimately, the issue “is one that is
still enveloped in the mists of metaphor.” Berkey v. Third Ave. Ry.
Co., 155 N.E. 58, 61 (N.Y.1926).
The metaphor of piercing the corporate veil has incorrectly
framed the relevant question. See id. (“Metaphors in law are to be
narrowly watched, for starting as devices to liberate thought, they
end often by enslaving it.”). Our cases treat the question of “veil
piercing” as if it were a cause of action proved by evidence of one or
more of the following:
1) the corporation is undercapitalized, (2) the
corporation lacks separate books, (3) its finances are
not kept separate from individual finances, or individual
obligations are paid by the corporation, (4) the
corporation is used to promote fraud or illegality, (5)
corporate formalities are not followed, or (6) the
corporation is a mere sham.
See C. Mac Chambers Co., Inc. v. Iowa Tae Kwon Do Acad., Inc.,
412 N.W.2d 593, 598 (Iowa 1987). The metaphor does not capture
the truth or spirit of the matter. In a veil piercing case, the “corporate
veil” is not actually pierced and the corporate entity is not
disregarded; instead, judgment is entered against the corporation, as
the judgment entry in this case reflects, and the district court takes
the additional step of imposing judgment against a shareholder for
the corporation’s liability where liability otherwise would not exist.
See Int’l Fin. Servs. Corp. v. Chromas Techs. Canada, Inc., 356 F.3d
731, 736 (7th Cir.2004) (“Piercing the corporate veil, after all, is not
itself an action; it is merely a procedural means of allowing liability
on a substantive claim.”).
Minger Constr., Inc. v. Clark Farms, Ltd., No. 14-1404, 2015 WL 7019046, at *4–
5 (Iowa Ct. App. Nov. 12, 2015) (McDonald J., dissenting).
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The district court found Algreen proved this is one of the exceptional
circumstances in which liability should be imposed upon a shareholder for a
judgment entered against the corporation. In support of its conclusion, the district
court noted GCI is now undercapitalized, is merely a shell without any assets or
employees, and Gardner used corporate funds for certain personal expenses. We
cannot agree Algreen established a case for personal liability here. The district
court simply failed to view the transaction in the relevant context.
There is no evidence supporting a finding GCI was undercapitalized. See
Briggs Transp. Co., Inc. v. Starr Sales Co., Inc., 262 N.W.2d 805, 810 (Iowa 1978)
(identifying undercapitalization as a relevant factor). The relevant inquiry is the
capital structure of the entity at or near the time of incorporation. See Minger
Constr., Inc., 2015 WL 7019046, at *9; Gilleard v. Nelson, No. 03–1496, 2005 WL
2756042, at *3 (Iowa Ct. App. Oct. 26, 2005) (affirming imposition of liability on
individual where entity “was undercapitalized at its moment of incorporation”);
Midwest Fuels, Inc. v. JP & K, Inc., No. 03–0218, 2004 WL 358291, at *2 n.1 (Iowa
Ct. App. Feb. 27, 2004) (recognizing the relevant inquiry is “initial capitalization of
the corporation”); see also Global Credit Servs., Inc. v. AMISUB (Saint Joseph
Hosp.), Inc., 508 N.W.2d 836, 839 (Neb. 1993) (“Inadequate capitalization means
capitalization very small in relation to the nature of the business of the corporation
and the risks the business entails measured at the time of formation.”); Pierson v.
Jones, 625 P.2d 1085, 1087 (Idaho 1981) (finding “financial inadequacy is
measured by the nature and magnitude of the corporate undertaking or the
reasonableness of the cushion for creditors at the time of its inception of the
corporation”). “Clearly, a corporation adequately capitalized at its inception can
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become undercapitalized at a later time for any of a variety of legitimate reasons.”
Pierson, 625 P.2d at 1087. Here, there is no evidence GCI was undercapitalized
at the time of its formation. We can infer the opposite from the record. GCI was a
legitimate business and operated successfully over a decade to the extent that its
book of business was sold for approximately $1.8 million. In addition, there is a
legitimate reason the corporate entity had no capital at the time of trial—it was no
longer in business. There is no longer any corporate undertaking requiring capital.
See Barrett v. Cont’l Ill. Nat’l Bank & Trust Co., 882 F.2d 1, 5 (1st Cir. 1989) (“At
the same time, however, the fact that a company is in the process of going out of
business is ordinarily the critical element in a court’s contextual assessment of the
‘reasonability’ of the company’s capital for the post-transfer period.”); Aero
Planning Intern., Inc. v. Air Assocs., Inc., 764 P.2d 610, 612 (Or. Ct. App. 1988)
(“Moreover, the facts that the defendant corporations are now out of business and
cannot pay plaintiff’s judgment are not a sufficient basis on which to conclude that
they were undercapitalized.”).
This same reasoning explains why we attach no relevance to the fact GCI
no longer had any employees or business operations. The district court viewed
this as evidence GCI was a sham. It is not. Instead, it is evidence Gardner sold
the business to a legitimate third party for substantial value and ceased operations
as part of the transaction. The fact that the company ceased operations without
paying all of its creditors is not the sort of injustice, standing alone, that warrants
piercing the corporate veil. See N.L.R.B. v. Fullerton Transfer & Storage Ltd., Inc.,
910 F.2d 331, 341 (6th Cir. 1990) (“The mere fact that the company ceased
operation without being able to pay all of its debts is, of course, not the sort of
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injustice contemplated. This form of injustice, if that is the correct term for it, is
present in every case.”); Lakeview Commons v. Empower Yourself, 802 N.W.2d
712, 717 (Mich. Ct. App. 2010) (“While Troy admitted that part of the reason
Empower ceased operations was to avoid the lease agreement with plaintiff, this
alone was not sufficient to raise a genuine issue of material fact regarding whether
Empower’s or Hamsa’s corporate veils should be pierced.”); Arrow Uniform Rental,
L.P. v. Longazel, 2009-Ohio-868, 2009 WL 478620, at *6 (Ohio Ct. App. Feb. 26,
2009) (holding shareholder was not liable for corporate debts through veil piercing
where the company’s assets were sold).
With respect to the misuse of corporate funds, the evidence does show
Gardner used corporate funds to pay certain personal expenses. This is certainly
improper but also certainly not atypical for a closely-held owner-operator business.
Given the lack of any other evidence in favor of imposing liability on Gardner for
GCI’s judgment debt, we do not think this single fact, standing alone, warrants the
extreme remedy of imposing personal liability on a shareholder for a corporate
obligation. We reverse the judgment of the district court on the claim to pierce the
corporate veil. Gardner shall not be jointly and severally liable for the judgment in
the wage-payment case.
IV.
Gardner contends the district court erred in awarding supplemental attorney
fees. Some additional background is required. After the district court entered
judgment in the fraudulent-transfer action, Gardner satisfied the existing judgment
in the wage-payment case. The district court then awarded supplemental fees
pursuant to the order in the fraudulent-transfer action. In awarding these fees, the
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district court emphasized the “the ruling in the associated equitable action,” which
found Gardner “engaged in fraudulent efforts to transfer [GCI’s] assets and conceal
them from [Algreen].” Because we have concluded the fraudulent-transfer claim
was not supported by substantial evidence, and because there is no basis for
determining what portion of the attorney fee award related to Algreen’s success on
the merits of that claim, we cannot apportion and reduce the attorney fee award in
any principled way. We thus conclude it is necessary for the district court to
determine whether the attorney fee award is still appropriate under the
circumstances and the amount of any such award. We vacate the portion of the
judgment awarding supplemental attorney fees and remand this matter for
reconsideration of the issue. See Dutrac Cmty. Credit Union v. Hefel, No. 15-0143,
2015 WL 7574230, at *10 (Iowa Ct. App. Nov. 25, 2015) (remanding attorney fee
award for “clarification and a ‘fresh consideration’”); Luke v. Valdez, No. 11-0750,
2012 WL 1058197, at *3 (Iowa Ct. App. Mar. 28, 2012) (“In light of this modification,
we remand for a redetermination of the trial attorney fee award.”).
V.
Algreen requests appellate attorney fees for having to defend this appeal.
Given our disposition in Gardner’s favor, such an award would be inappropriate.
Considering the facts of this case, we decline to award appellate attorney fees.
VI.
In light of the foregoing, we reverse the district court in the equitable action
and remand for dismissal of that action. We also vacate the judgment awarding
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supplemental attorney fees and remand for reconsideration of whether
supplemental attorney’s fees are still appropriate and, if so, in what amount.
REVERSED AND REMANDED.
Tabor, J., concurs; Doyle, P.J., dissenting in part.
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DOYLE, Presiding Judge (concurring in part and dissenting in part).
I concur in the majority’s vacation of the punitive damage award and
declination to award Algreen appellate attorney fees part, but I respectfully dissent
from the majority’s disposition of the fraudulent-transfer claim and award of
supplemental attorney fees.
Fraudulent Transfer. The majority opinion on this point is thoughtful and
well-written. Nevertheless, I find sufficient evidence that a fraudulent transfer
occurred. “The doctrine of fraudulent conveyances advances the principle that a
debtor’s property constitutes a fund from which the debtor’s obligations should be
paid and the debtor may not frustrate a creditor’s right to obtain satisfaction from
the fund.” Benson v. Richardson, 537 N.W.2d 748, 756 (Iowa 1995) (citation
omitted). Iowa’s former Uniform Fraudulent Transfer Act (UFTA), governs this
appeal.1 The use of the word “fraudulent” in the title of the Act is a misnomer in
that fraud is not a necessary element of a claim for relief under the UFTA. 2 The
majority opinion sets forth applicable law and I need not repeat it here.
1
2016 amendments repealed the Uniform Fraudulent Transfer Act and enacted the
Uniform Voidable Transactions Act. The chapter is now cited as the “Iowa Uniform
Voidable Transactions Act.” Iowa Code § 684.15 (2018).
2
Recognizing that words matter, the National Conference of Commissioners on Uniform
State Laws changed the title of the Uniform Fraudulent Transfer Act to the “Uniform
Voidable Transactions Act” by 2014 amendments. The official comments are illuminating:
The 2014 amendments change the short title of the Act from “Uniform
Fraudulent Transfer Act” to “Uniform Voidable Transactions Act.” The
change of title is not intended to effect any change in the meaning of the
Act. The retitling is not motivated by the substantive revisions made by the
2014 amendments, which are relatively minor. Rather, the word
“Fraudulent” in the original title, though sanctioned by historical usage, was
a misleading description of the Act as it was originally written. Fraud is not,
and never has been, a necessary element of a claim for relief under the
Act. The misleading intimation to the contrary in the original title of the Act
led to confusion in the courts. See, e.g., § 4, Comment 10. The misleading
insistence on “fraud” in the original title also contributed to the evolution of
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There is direct evidence of Gardner’s intent to hinder, delay, or defraud
Algreen as a creditor. When Algreen asked about his unpaid wages after his
termination, Gardner told Algreen that he would “never see a dime.” The evidence
clearly shows Gardner undertook a course of action to make good on his promise.
In the wage-dispute action, the district court observed that Gardner’s animosity
toward Algreen “was palpable in the courtroom and from the witness stand.” In its
ruling on the fraudulent-transfer action, the court found it “abundantly evident” that
“Gardner harbors personal spite and disdain for Algreen.” Standing on its own,
this evidence would not support a finding that the transfer was fraudulent as to
Algreen. “[O]rdinarily a debtor may prefer one creditor over another, ‘even if the
debtor’s intentions . . . are spiteful and the action will delay or prevent the
nonpreferred creditor from obtaining payment.’” Ralfs v. Mawry, 586 N.W.2d 369,
373 (Iowa 1998).
But, in addition to the direct evidence of Gardner’s intent to hinder, delay,
or defraud Algreen as a creditor, several badges of fraud are also present. Gardner
testified that he began negotiating a sale of GCI in the spring of 2013—almost one
year after GCI terminated Algreen. Gardner was well aware of Algreen’s claim for
unpaid wages before the sale negotiations began. Algreen filed his lawsuit for
widely-used shorthand terminology that further tends to distort
understanding of the provisions of the Act. Thus, several theories of
recovery under the Act that have nothing whatever to do with fraud (or with
intent of any sort) came to be widely known by the oxymoronic and
confusing shorthand tag “constructive fraud.” See §§ 4(a)(2), 5(a).
Likewise, the primordial theory of recovery under the Act, set forth in §
4(a)(1), came to be widely known by the shorthand tag “actual fraud.” That
shorthand is misleading, because that provision does not in fact require
proof of fraudulent intent. See § 4, Comment 8.
Unif. Voidable Transactions Act (2014) § 15 cmt 1, 7A pt.II U.L.A. 242 (2017).
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unpaid wages more than four months before GCI sold its book of business.
Gardner had notice of the suit prior to the sale. In spite of this, the purchase
agreement falsely represented that there were no lawsuits pending against GCI.3
Because the proceeds of the sale of the book of business went to Gardner
personally, the sale left GCI with no ability to satisfy Algreen’s wage payment
claim. Gardner acknowledged it was GCI’s assets being sold but he was unable
to provide any explanation as to why he personally received the payments rather
than GCI; he just replied, “That’s how we did it.” Pressed further on the issue, he
just said he had no explanation. Gardner made no attempt to satisfy any part of
the wage-dispute judgment with the proceeds he received from the sale. Gardner
deposited the payments for GCI’s assets in his personal checking account.
Gardner testified at the judgment debtor examination that he did not intend to
satisfy judgment. Gardner claimed to have spent all of the $1.2 million he had
received in payment for the sale at the time of trial. He used some of the money
to satisfy obligations or other business interests he had, but none of the money
was used to satisfy any debt or liability of GCI. He testified he felt no personal
responsibility to satisfy GCI’s debts and liabilities. Other than making a $30,000
offer of judgment three weeks before the fraudulent-transfer trial, Gardner testified
he had taken no steps to satisfy Algreen’s wage-payment judgment and that he
had no intention of taking any steps in the future to satisfy the judgment. He
3
Gardner represented and warranted in the April 2014 purchase agreement that, “There
are no actions, lawsuits or proceedings of any kind threatened against the BOOK, Gardner
Crop Insurance, Inc., Timothy E. Gardner or Walter Gardner, Jr. relative to the BOOK, or
the basis for any such actions, lawsuits, or proceedings.” Gardner testified at the judgment
debtor examination that he called CGB in September 2013 when the wage-dispute lawsuit
was filed, “explained what it was, and they were aware of it.” He testified a representative
of CGB “just said okay.”
19
admitted, that as of the time of trial, Algreen had not seen a dime of the unpaid
commissions and base pay GCI owed him.
When considering Gardner’s direct actions with the surrounding
circumstances, I conclude clear and convincing evidence shows Gardner
structured the sale of GCI’s book of business to hinder, delay, or avoid paying the
judgment owed to Algreen. To be clear, I am not to saying the sale of GCI to CGB
was not a bona fide sale; no one disputes the reasonableness of the sales price.
But the way the deal was structured—with all of GCI’s assets being sold and cash
payments being made directly to Gardner not GCI— any opportunity for Algreen
to collect from GCI was thwarted. Moreover, had Algreen garnished CGB after the
sale, CGB would, no doubt, have answered, that it was not indebted to the
judgment debtor, GCI. Under the purchase agreement terms, that answer would
have been true—it was contractually indebted to Gardner, not GCI.
“[E]ven if a debtor has at least one non-fraudulent motive for a transaction,
the additional motive of effecting the transaction to hinder a creditor ‘is a sufficient
ground for an unassailable conclusion [of] ... fraudulent intent [under the UFTA].’”
Bertram v. WFI Stadium, Inc., 41 A.3d 1239, 1247 (D.C. 2012) (internal citation
omitted). Gardner presented no evidence to the contrary. I therefore conclude the
sale of GCI to CGB was a fraudulent transfer, as defined under section 684.4, as
to Algreen. I would affirm the district court’s judgment that Gardner and GCI are
jointly and severally liable for the judgment entered in Algreen’s favor in the wage-
dispute action. The remedy fashioned by the district court is consistent with the
20
remedies available under section 684.7, and, in any event, Algreen’s wage-
payment judgment has already been satisfied.4
Punitive Damages. I concur with the majority’s disposition of the punitive
damages award for the following reasons. Section 684.7 does not specifically
provide for punitive damages as a remedy available to a creditor, 5 but it does
provide that a creditor may obtain “[a]ny other relief the circumstances may
require.” Iowa Code § 684.7(1)(c)(3). Under Iowa Code section 668A.1(1)(a), “to
receive punitive damages, a plaintiff must prove by a preponderance of clear,
convincing, and satisfactory evidence that the defendant’s conduct amounted to a
willful and wanton disregard for the rights of another.” Hockenberg Equip. Co. v.
Hockenberg’s Equip. & Supply Co. of Des Moines, 510 N.W.2d 153, 156 (Iowa
1993). Merely objectionable conduct is not sufficient. See id. “[Punitive] damages
may be awarded where it appears that the defendant is guilty of fraud.” Syester v.
Banta, 133 N.W.2d 666, 676 (Iowa 1965) (citation omitted). The question is
whether Gardner’s conduct constituted willful or wanton disregard for Algreen’s
rights.
Willful and wanton conduct occurs when”[t]he actor has intentionally done
an act of unreasonable character in disregard of a known or obvious risk that was
so great as to make it highly probable that harm would follow, and which thus is
usually accompanied by a conscious indifference to the consequences.” Miranda
4
On December 15, 2016, $75,685.60 was tendered to the clerk of court for payment in
full of the judgment in the wage-dispute matter. The next day, GCI filed a “Computation
of Judgment Payoff” showing how the amount was computed, including accrued interest.
The court ordered the clerk to deliver the amount to Algreen’s counsel and to show
payment on the judgment. A satisfaction of judgment was filed acknowledging payment
in full on the April 2015 wage-dispute judgment.
5
Probably because fraud is not a necessary element of a claim for relief under the UFTA.
21
v. Said, 836 N.W.2d 8, 34 (Iowa 2014) (alteration in original) (citation omitted).
Stated differently, a plaintiff can recover punitive damages only if actual or legal
malice is shown. See Cawthorn v. Catholic Health Initiatives Iowa Corp., 743
N.W.2d 525, 529 (Iowa 2007).
Actual malice may be shown by such things as personal spite,
hatred, or ill-will and legal malice may be shown by wrongful conduct
committed with a willful or reckless disregard for the rights of
another. . . . Thus, merely objectionable conduct is insufficient . . . .
To receive punitive damages, plaintiff must offer evidence of
defendant’s persistent course of conduct to show that the defendant
acted with no care and with disregard to the consequences of those
acts.
Id. (citations omitted).
Although there is evidence of animosity by Gardner toward Algreen, I do not
believe it rises to that level of actual or legal malice necessary to support an award
of punitive damages. “[O]rdinarily a debtor may prefer one creditor over another,
‘even if the debtor’s intentions . . . are spiteful and the action will delay or prevent
the nonpreferred creditor from obtaining payment.’” Ralfs, 586 N.W.2d at 373.
With that in mind, I do not find a preponderance of clear, convincing, and
satisfactory evidence that Gardner’s conduct rose to that level amounting to a
willful and wanton disregard for the rights of Algreen. Because insufficient
evidence supports it, I agree the punitive damages award must be vacated.
Attorney Fees. After entry of the judgment in the fraudulent-transfer action,
Algreen filed a supplemental application seeking $21,065.00 attorney’s fees and
$1137.18 expenses incurred since the April 2015 entry of the judgment in the
wage-dispute case. GCI resisted. After a hearing, the district court awarded
22
Algreen the $22,202.18 in fees and expenses he requested and entered judgment
against GCI in that amount.
Gardner claims the district court did not have authority to award
supplemental attorney fees. He notes that Algreen did not request an award of
attorney fees in the fraudulent-transfer action and argues that the court was
therefore without authority to award attorney fees for in that action.
Ordinarily, a successful party cannot recover attorney fees unless
authorized by statute or agreement. See Maday v. Elview–Stewart Sys. Co., 324
N.W.2d 467, 469 (Iowa 1982). Iowa Code section 91A.8 specifically provides that
an employer that has intentionally failed to pay an employee’s wages shall be liable
for “any attorney’s fees incurred in recovering the unpaid wages and determined
to have been usual and necessary.” Accordingly, if an employee prevails on a
claim for unpaid wages under chapter 91A, the district court is required to assess
attorney fees against the employer when requested. See Audus v. Sabre
Commc’n Corp., 554 N.W.2d 868, 874 (Iowa 1996).
In the judgment entry for the wage-dispute action, the court stated it would
“reserve jurisdiction to consider any supplemental claims for attorney fees and
expenses necessitated in Iowa Code section 91A.8 collection activities undertaken
by Algreen.” The order was never appealed, and as such, it is binding. See City
of Ankeny v. Armstrong Co., 353 N.W.2d 864, 867 (Iowa 1984).
In granting Algreen’s application for supplemental attorney fees and
expenses, the district court stated:
[Gardner] refused to pay the judgment voluntarily. According to the
court’s ruling in the associated equitable action, [Gardner] engaged
in fraudulent efforts to transfer its assets and conceal them from
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[Algreen]. [Algreen]’s execution on [Gardner] had previously been
returned unsatisfied. There is no satisfactory showing that any of the
ordinary methods of collection would have been successful in this
case.
[Algreen] therefore filed a separate action for fraudulent
transfer and piercing the corporate veil against both [Gardner] and
Timothy Gardner. [Gardner] allowed this case to proceed all the way
through trial, on full notice that litigation expenses were mounting.
[Gardner] did not pay the judgment until after [Algreen] had
successfully brought this action to a conclusion. Surely [Gardner]
may not now be heard to complain that [Algreen]’s methods were
“unusual and unnecessary,” when it was [Gardner]’s own actions,
now judicially determined to be deceitful, which required the separate
lawsuit.
Although Algreen was entitled to payment for the wages he earned while
working for GCI, Gardner refused to pay them. He was forced to file a wage-
payment action. Gardner then embarked on a course of action to hinder and delay
payment of those wages and commissions. Gardner’s attempts to avoid paying
Algreen included structuring the sale of GCI’s assets to hinder Algreen’s ability to
collect the wages and commissions due him. After trying unsuccessfully to collect
on his wage-payment judgment, Algreen resorted to filing the fraudulent-
conveyance action and incurred additional attorney fees in litigation of that action.
As a direct result of that litigation, Algreen finally recovered his unpaid wages and
commissions. The attorney fees and costs Algreen incurred in the fraudulent-
transfer action should be recoverable as part of his judgment in the wage-dispute
action. I conclude the district court did not err in ordering that Gardner and GCI be
jointly and severally liable to pay Algreen’s supplemental attorney fees and
expenses.
Gardner also challenges the amount of supplemental attorney fees
awarded, arguing they are not usual or necessary. We review challenges to the
24
amount of attorney fees awarded for abuse of discretion. See Lee v. State, 906
N.W.2d 186, 194 (Iowa 2018). The trial court’s discretion in awarding attorney fees
is broad but not unlimited. Gabelmann v. NFO, Inc. 606 N.W.2d 339, 342 (Iowa
2000). We presume the trial court’s award is correct unless the complaining party
shows the contrary. See Lee, 906 N.W.2d at 194.
Gardner does not argue the hourly fee or the amount of hours charged by
Algreen’s attorney are unreasonable. He instead claims there was another less-
costly means by which Algreen could have collected his judgment. His argument
is unavailing. I believe Gardner committed statutory fraud to avoid paying the
judgment owed to Algreen. It is disingenuous for Gardner to argue Algreen should
have pursued alternate and cheaper collection methods. There was no showing
that electing an alternate collection method would have met with any success,
particularly in view of the hurdles Gardner placed in Algreen’s path.
Because Gardner has failed to rebut the presumption that the court’s award
of attorney fees was correct, I would allow the supplemental attorney fee award to
stand.
Appellate Attorney Fees. I concur with the majority’s declination to award
Algreen appellate attorney fees.